Kill the Farm Bill

Eli Lehrer

August 6, 2012 9:20 AM

A major farm bill is now stalled in the House as members head back to their districts for their traditional break. This is a good thing. The measure approved by the Senate and by the House Agriculture committee with bipartisan support easily ranks as the worst major piece of domestic policy legislation to have a serious shot at passing a conservative chamber of Congress. The $957 billion bill—called the Federal Agriculture Reform and Risk Management Act (or FARRM) by the House committee—fails to rein in entitlements, banishes the last vestiges of the free market from American agriculture, and threatens to harm the environment. Quite simply, this bill guts nearly all controls that would otherwise stop poorly conceived agricultural subsidies from spiraling out of control. Congress needs to reconsider the entire bill.

America’s complicated system of agricultural subsidies, regulations, and price controls has long stood on a corrupt log-rolling bargain. Urban Democrats in Congress have strongly supported subsidies and price supports for mostly Republican farm country in return for Republican support for a generous and ever-expanding Supplemental Nutrition Assistance Program (SNAP), better known by its old name of “food stamps.”

The current bargain “works” as an exercise in client politics. SNAP assures that everyone gets enough calories, while the agricultural price supports and subsidies have brought farm family income above the national average.

While this “bargain” has been expensive, Congress and presidents of both parties have tried to mitigate its worst excesses. While keeping food stamps intact as an entitlement, the welfare reforms of the 1990s transformed SNAP into a “hand up” that went to many people who worked full-time for low wages. On the farms, meanwhile, subsidy and insurance programs typically covered a small enough percentage of losses that farmers still had an incentive to plant and manage wisely.

The last decade, however, has seen the spending grow more and more extravagant. SNAP, which accounts for 78 percent of the bill’s cost, deteriorated first. Under the Bush administration, federal regulators and Congress began to allow states to play fast and loose with eligibility rules for SNAP, and this practice accelerated under the Obama administration. Democrats got to hand out more tax dollars, while Republicans both helped support their farm constituents, who grow what’s purchased with food stamps, and got to claim they had transformed the entitlement program into “workfare.”

When the economy tanked, genuine need for the program rose. The result has made food stamps into an ever-growing entitlement whose ranks have expanded from 26.5 million in 2007 to more than 45 million today. The Senate, in the version it just passed, contented itself with closing only a few obvious loopholes, while allowing the overall program to remain far larger than its historical size.

In an even more egregious overreach, the bill now pending in the House threatens to gut limits on farm subsidies in one fell swoop. Most important, it introduces a massive, heavily subsidized new program called “shallow loss” coverage. Like existing crop insurance, this program provides farmers protection against both natural disasters that might befall their crops and changes in market prices that reduce revenue. (Such explicit coverage against market fluctuations is very rare in private insurance.) Unlike existing subsidized coverage, which requires farmers to assume as much as half of the risk themselves, “shallow loss” will guarantee that farmers lock in up to 90 percent of the revenues they’ve been enjoying during the recent period of record high commodity prices. Unlike the slated-for-elimination Direct Payments program—which simply hands money to farmers whether or not they plant, and thus has a predictable cost—the shallow loss program is an open-ended entitlement that could cost vastly more than forecast.

The risks grow even greater when one realizes FARRM will serve to limit “conservation compliance” requirements now tied to Direct Payments. These requirements are promises that farmers will take special care when farming in highly erodible areas and avoid draining wetlands as part of a quid pro quo for subsidies. If farmers purchased insurance in a free market or went without, they would have strong incentives not to plant such marginal, highly erodible and flood-prone land where crops are likeliest to be lost. But with profits from almost all plantings essentially guaranteed, farmers have every reason to plant where they shouldn’t. This amounts to subsidizing the contamination of waterways, the destruction of wildlife habitat, the promotion of dust storms, and even the ruin of -otherwise good land.

The best possible farm bill—which probably could not get more than a smattering of support—would return SNAP to the rules, regulations, budgets, and eligibility standards of the middle part of the last decade while phasing out both direct payments to farmers and all subsidies for crop insurance. With some small tweaks, in fact, private companies that now service and assume some risk for crop insurance could begin to underwrite policies for farmers without subsidies.

More realistically, however, Congress should at least try not to make things worse. If lawmakers remain intent on a SNAP far bigger than its historical size, caps on the budget and block grants to the states might rein in the program’s growth while still fulfilling its goals. Likewise, if it goes ahead with the awful idea of guaranteeing farmers’ profits through shallow loss coverage, Congress should mitigate negative consequences by adding more conservation compliance rules for those who get subsidies and including Senate-passed provisions that forbid agricultural subsidies to help farmers “break in” previously unfarmed swamps and grasslands. (The latter is good policy regardless.)

Ultimately, the foundation of America’s agricultural subsidy system is so rotten that no incremental reform could ever give the nation a sensible farm policy. With luck, Congress will ditch the FARRM Act and start over from scratch.